Secondary Market Annuity myth

What is a Secondary Market Annuity?

Secondary market annuity is a wholly misleading, intellectually dishonest, scam label used by intermediaries in the tertiary market as bait, to "hook" and "reel in" fish to invest in structured settlement payment rights acquired pursuant to a structured settlement factoring transaction  [see IRC §5891(C)(2) and §5891(C)(3)(a)].


The term secondary market annuity (SMA) is an illusion. 


Also known as structured settlement derivatives (because they are derived from a structured settlement payment obligation),  factored structured settlement payment streams ,  recycled structured settlement payments, or in-force payments. and the intellectually dishonest "secondary market income annuity" (SMIA). 

Why Secondary Market Annuity or SMA?

Secondary Market Annuity is an engineered term used solely for marketing purposes.   Nobody issues secondary market annuity. The instrument that is labeled a secondary market annuity is not regulated by any regulatory authority.


While fruits are commonly mistaken for vegetables  (e.g. avocados, eggplant, cucumber, okra), that's not the case with the intellectually dishonest and misleading label of secondary market annuity because it's intentional. One  of the more militant purveyors of  structured settlement investments, stated in a video that it uses the term simply because he claims it is easier to say.


While the accurate terms structured settlement payment rights, or factored structured settlement payment streams, doesn't have the comparable Mary Poppins level of lyrical compatibility as supercalifragilisticexpaladocious, it doesn't nearly rise to the degree of tongue tying as one would have to endure with antidisestablishmentarianism, or Pneumonoultramicroscopicsilicovolcaniosis


The potential for confusion is enormous, particularly when selling to unsophisticated investors, retirees, or lawsuit plaintiffs.  Some actors in the space have added to the confusion by making unauthorized use of insurance company trademarked logos to  enhance the "annuity" illusion.


 "My bottom line: Steer clear of the product.  The time-honored insight holds: A higher yield means greater risks. I don't see anything "safe" about a secondary market annuity for the average retiree". wrote Chris Farrell Economics editor Marketplace in The Skinny on Secondary Market Annuities, February 10, 2012, in response to a retiree who asked "I am retired and would like to safely increase income. 

What is a secondary market annuity? Is it a suitable vehicle for putting a portion of retirement funds to safely increase guaranteed retirement income?" 


Farrell is a leading expert on the growing trend toward working well into the traditional retirement years. Farrell is a journalist for PBS Next Avenue and the Star Tribune. His latest book, published in 2019, is Purpose and a Paycheck: Finding Meaning, Money, and Happiness is the Second Half of Lifel and is a graduate of Stanford and the London School of Economics. 

Why an SMA Is Not an Annuity

Warning! A secondary market "annuity" is not a regulated insurance product. There are risks inherent with in the scam labelled SMAs that do not exist with regulated  insurance products. There are no rules regarding solicitation of investors in the scam labelled secondary market annuities and arguably secondary market "annuities" do not receive the same protections as legitimate annuities do. Investors have been hurt, some of them retirees who cannot afford to lose. 


Some actors like the cachet of annuities for obvious reasons, the implication, however untrue, that its a regulated insurance product providing stable income without disclosing transaction risk.


 Western United Life Assurance Company v. Hayden, 64 F.3d 833 (3rd Cir. 1995), then-Judge (later U.S. Supreme Court Justice) Samuel Alito, on behalf of the Third Circuit Court of Appeals, repeatedly pointed to the difference between rights that a payee has to future payments under a settlement agreement and the lack of rights of a payee under an annuity purchased by the obligor to fund such payments 


On November 2, 2015, late Congressman Elijah Cummings (D-Maryland), then ranking member of the House Oversight Committee, sent a letter to Thomas Burgess Hamlin CEO of  Somerset Wealth Strategies    significant for the including the question of whether “secondary market annuities” are  regulated annuities under Maryland State law; what disclosures are made  to purchasers of these “annuities;” the profits made by selling or  mediating the sale of these “annuities.”    Somerset sold one of these instruments to a retiree who was upposed to start receiving monthly checks in January 2018, but has never been paid one cent on his $150,000 investment. In September 2019 , according to the public disclosure record for Thomas Burgess Hamlin, . Despite exiting the marketplace, Somerset has continued to be militant about maintaining the website secondarymarketannuities(dot)com with the scam label Secondary Market Annuities, although the words factored structured settlement payments appear prominently. In September 2019, Thomas Burgess Hamlin paid $50,000 to an investor in a so-called secondary market " annuity" according to FINRA records. A colleague of his Brian Thomas Horn paid $55,000 to settle a parallel claim involving the same client in December 2019. More details my be found by visiting FINRA Broker Check.  Simply enter the name of these two gentlemen (one at a time) and ask for the full report. Once it appears on your screen  scroll down to disclosure events


In a March 29, 2017 decision in Greenwald v Caballero-Goehringer,  Delaware Superior Court C.A. No. K14C-04-027 JJC.   a  Delaware Superior Court judge rejected an attempt to portray structured settlement payment rights as an annuity, stating. "The proposed "structured settlement" was described in the Third Petition  as a structure to be purchased through a third party to be facilitated  by a Houston, Texas law firm. The "annuity" proposed by the Petitioner  was in fact a "receivable purchase agreement" which involved purchase of  the rights of payment of a structured personal injury settlement from a  California injured party having nothing to do with this case. In other  words, the annuitant in the proposed plan facilitated by the Texas law  firm was the California claimant, not the Minor. Furthermore, despite  the Petitioner describing The Hartford as providing the annuity, the  seller of the receivable purchase agreement was Genex Capital. No rating  was provided for that entity in the petition. The Court denied the Third  Petition, without prejudice":


In an October 27, 2017 decision in Portsmouth Virginia Circuit Court, Judge Johnny Morrison ruled that New York Life Insurance Company could amend its petition to add investors and continue its interpleader motion. Millions of investor dollars are at stake in that single case involving at notorious cases of structured settlement transfer abuse  (11 transactions approved in 2 years) that made the front page of the Washington Post on December 30, 2015

The Secondary Market Annuity Scam Label

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Either It's An Annuity Or It's Not

There are no shades of grey here.

National Association of Insurance Commissioners Has Opined

The National Association of Insurance Commissioners opined in Statutory Issue Paper 160 in December 2018, which was finalized in April 2019,  that the acquisition of structured settlement payment rights is not an insurance product (i.e. life insurance or annuities). One thing is for sure, this does not happen when you simply buy a regular annuity.

False Advertising

If it's not an annuity, then it follows that calling it an annuity, driven by a profit motive, in a deliberate effort to cause someone to buy it could be considered false advertising or fraud.  "A Secondary Market Annuity “SMA” is not an annuity at all"  now admits Somerset Wealth despite running a website called secondarymarketannuities(dot)com.


If manufacturers of vegan food use the term chick'n on packaging for plant based chicken substitutes, why are merchants of the mislabeled investments not doing something similar?


The Corollary

The corollary is of course, if it is an annuity then no mention should be made of statutory protections that may apply to annuities in connection with the sale thereof (as the scam labelers like to do) because it would be unlawful.  

Professor Adam Scales Wasn't a Scam Labeler

Even Professor Adam F. Scales, the doyen of structured settlement factoring, did not refer to factored structured settlements by the intellectually dishonest label secondary market annuity.

Should i buy a "Secondary market Annuity"?

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Do You Have a Clear Understanding of What You Are Buying?

While buying  a structured settlement derivative may make sense for some people, unless you're completely informed and have a clear understanding of what you are buying  (i.e. not an annuity) and how the risks differ from a real annuity, you should not proceed with the investment.

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Check State Registration and Insurance

It is best to deal with a company that is registered and/or licensed  to do business in your state. 

 

Make sure you confirm the existence of active professional liability insurance that covers any advice you receive. This is critical because of the misleading use of the term "secondary market annuity". The policy may cover advice concerning annuities but advice concerning SMAs or structured settlement derivatives may not be covered. You don't want to find out if there is a claim.

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Vacated Court Order Insurance

A number of lawsuits have arisen over the past several years seeking to overturn transfer orders. A notable example was a cluster of deals that were originated by Chevy Chase based Access Funding (now Reliance Funding), that found their way to individual investors through various intermediaries and are at the center of lawsuits by the Maryland Attorney General, the Consumer Financial Protection Board and a victims' class action. Some payments have already been suspended pending the outcome of ongoing appellate litigation and orders may eventually be vacated.. As of December 27, 2019 payees have still not been paid., One investor brought a FINRA complaint against a former merchant of "Secondary Market Annuities " which was settled in September 2019, according to the FINRA and IAPD public disclosure databases. There is a plethora of new discovery occurring that could give rise to potentially actionable challenges in the future.


Investors in structured settlement derivatives can now avail themselves of insurance placed through certain underwriters at Lloyds of London, that provides some protection against the transaction risk of overturning approved structured settlement transfer orders.  Note that defense costs ARE NOT covered! The insurance cover first became available May 1, 2017.


For investors, the policy is first taken out by the structured settlement factoring company and then the investor is added, at an extra cost at the point of sale on a pay as you go basis.


Note that this is a separate and distinct cover from professional liability/ errors & omissions coverage. Coverage limits are a maximum of $1 million so that may not be sufficient on big deals or in the aggregate. More details here

Video

Check out this video making light of the use of the misleading term Secondary Market Annuity

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